On Monday, June 19, Jurisline.com (http://www.jurisline.com) entered into a consent agreement with Reed Elsevier (http://www.r-e.com) by agreeing to a final judgment in New York's State Supreme Court, terminating lawsuits each filed against the other in late 1999 and early 2000. Although the ruling is a victory for Reed Elsevier and its subsidiaries Matthew Bender (http://www.bender.com) and LEXIS (http://www.lexis-nexis.com), questions about the enforceability of so-called "copyright by contract" schemes remain.

Recent Internet start-up Jurisline.com sought to compete with juggernauts LEXIS and West Group in the legal informational database market by offering, among other things, federal and state case law free of charge, recognizing revenue from advertising instead. Jurisline built its legal database by licensing copies of LEXIS Law On Disc CDs, removing LEXIS's enhancements, then incorporating the core informational content as its own on its Web site. Jurisline's bold, aggressive approach was premised on two legal theories: 1) The basic data contained in the LEXIS Law On Disc CDs is in the public domain because it was created by federal and state government at taxpayer expense, and 2) the licenses executed by Jurisline for obtaining the CDs were unenforceable because federal copyright law preempted New York's law of contracts. (For more detail on these suits, see our February 9, 2000 NewsBreak by T.R. Halvorson, "Jurisline.com Suit Could Shift the Underpinnings of the Online Legal Marketplace and Beyond.")

Unfortunately for Jurisline, Judge Jed Rakoff of the U.S. District Court for the Southern District of NY did not agree with Jurisline's legal theories.

Jurisline originally filed suit in federal court in December 1999, seeking a declaratory judgment that LEXIS's licensing contracts were trumped by federal copyright law. LEXIS responded by filing suit in New York state court seeking $25 million in damages for breach of contract (LEXIS Law On Disc's license agreements) and fraud (Jurisline employees allegedly misrepresented in the license agreements how the CDs would be used).

In April, U.S. District Court Judge Rakoff rejected Jurisline's federal preemption claims, ruling that the copyright statute only preempted state law claims that were the equivalent of federal copyright claims (http://www.netins.net/showcase/trhalvorson/law/order_remand.html). He reasoned that rights granted under the license agreements giving rise to LEXIS's contract claims only bound the parties to the license, i.e., Jurisline and LEXIS. On the other hand, a copyright holder's rights are binding against the whole world. Rakoff's decision sent Jurisline's federal lawsuit down to the state court where Commercial Part Justice Ira Gammerman was presiding over LEXIS's fraud and breach of contract lawsuits. The ominous cloud of the federal court's rejection of Jurisline's federal copyright preemption claim was a harbinger of Jurisline's chance of success in state court. Trial was set to begin on July 27.

Rather than take its chances in state court and dedicate the enormous resources necessary to fully litigate the legal issues against a "well heeled" party such as Reed Elsevier, Jurisline made a business decision to end the case prior to trial. In a press release (http://www.jurisline.com/press_releases.cfm?release=pr000620), Jurisline stated that ending the dispute "will allow [Jurisline] to instead focus our efforts and resources on our core business of providing members of the legal community with unparalleled free online access to legal research materials and other legal services, and offer a viable alternative to traditional, fee-based services."

When asked to comment on the settlement, both Kendrick Chow and Lee Eichen said they "continue to feel very strongly about the legal issues raised in the suit" including whether LEXIS's licenses were a veiled attempt to bind all users of the CDs to a copyright-type agreement. As for the antitrust issues, certainly "some legal material is available from other sources, but most older court decisions can only be found by utilizing LEXIS and Westlaw," they said. Looking forward, Chow and Eichen indicated that they would be able to replace the data obtained from the LEXIS CDs from other public sources, and both were eager to concentrate on building on the core business principles of Jurisline.com: providing free access to legal materials.

Reed Elsevier wasted no time in touting its victory, issuing a press release (go to http://www.r-e.com/introduction.htm and click on "Announcements.") on June 19 that its lawsuits "ended successfully ... following an earlier decisive ruling by the Federal court that Matthew Bender's state law claims were not preempted by the US Copyright Act." The release then spelled out, in considerable detail, the terms of the judgment.

Some Remaining QuestionsHowever, questions remain about whether "copyright by contract" schemes are enforceable.

First, the federal court's ruling was procedural, not substantive. Substantive rulings define the rights and duties between two parties, while procedural rulings merely govern how those rights and duties are enforced. Although Rakoff held that LEXIS's license agreements were enforceable and not preempted by the Copyright Act, his holding came in a ruling to send the federal case back to the state court (procedural) versus a trial on the merits of the Jurisline's claims (substantive). Since the decision to send the case back to state court (a remand ruling) is not appealable and Rakoff's decision against preemption was not binding on the state court, Commercial Part Justice Gammerman might have agreed to hear Jurisline's full case. Although a fine point with a small chance for success, an accomplished litigator like Jurisline's attorney David Boies might have been able to turn the case around if Jurisline had chosen to pursue the lawsuits to the bitter end.

Second, and related to the first, the federal copyright preemption issue was disposed of in the remand ruling before discovery was completed. In civil trials, discovery is the process where each side gets to find out (discover) what evidence the other side will present at trial. It is accomplished by taking depositions, answering interrogatories, and requesting the production of documents. The outcome of the lawsuit might have been much different if Jurisline had been able to find credible evidence about whether the CDs were widely available from other sources, whether the LEXIS case law database received government subsidies during development, and whether LEXIS itself copied the information from West Group without authorization during the database's creation.

These questions will not be answered by the parties in this case. The state court's Final Judgment dismissed Jurisline's claims with prejudice, meaning that Jurisline cannot re-file its claims at a later date, and since the judgment was entered with Jurisline's consent, an appeal is highly unlikely. Reed Elsevier's victory will likely give pause to anyone hoping to challenge the enforceability of the LEXIS Law On Disc license agreements. However, if some future lawsuit rules that a copyright contract relating to publicly available material, cloaked in the veil of a license agreement, is unenforceable, the result will be far-reaching. Producers of information databases containing public information will need to find new, innovative ways to protect their products.

Daniel R. Valente is an attorney in the Washington, DC, office of Pepper Hamilton LLP. His practice is devoted primarily to providing services to high-technology and Internet companies.